Analyse the advantages and disadvantages of foreign direct investment for developing countries.

7 03 2012
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Question 4 
Analyse the advantages and disadvantages of foreign direct investment for developing countries.
First off, foreign direct investments are seen as a capital inflow of funds, or an investment abroad by external countries. Also, FDI consists of many multinational companies, where outside companies conduct business and production/service in different countries rather than their origin country. The problems and disadvantages with these MNCs, is major exploitation for cheap manual labor, capital intensive machinery that causes high unemployment, transfer prices for tax evasion, tax control and influence over the LDC, and negative capital outflow for the LDC. 
The advantages is that FDI allows for an increase in local investments, stimulation of the local economy, increase in GDP, efficient allocation of resources, increase in employment, increase in merit goods such as education and productivity, and a large gain in tax revenue from MNCs. The benefits outweigh the cons because it allows for total increase of education and employment, such an increase causes a major advantage towards becoming a developed country. Despite possible capital outflow, MNCs will help pull a LDC out of being undeveloped. 




#5 Triple A Data Response from section 4.7 (1)

23 02 2012

Question 1

Distinguish between ‘internal’ and ‘external’ debt.

Internal debt is a debt owed by governments to its own citizens. This form of money is not created, nor is printed but simply borrowed from the citizens, which is borrowed from the nations central bank. This form of borrowing also decreases the money supply within an economy or rather the movement of money within an economy.

External debt is owed by entities of foreigners, people that are not from the origin of the money supply. They can be the government, the corporations, or private households. The money borrowed is usually from private banks, other governments, international financial institutions like the IMF.

Question 2

Using examples from the article and from your own knowledge, examine the problems associated with a developing country having a significant amount of external debt.

With a substantial amount of external debt, Uganda faces a large problem with their balance of payments. It stated that it is “deteriorating terms of trade” due to their “reckless borrowing”. What this means is that there’s a net subtraction from available resources, and in doing so, Uganda is forced to export more than import in order to run trade surplaces that alleviate pressure caused by external debt. This debt service creates a burden on the available funds for expenditure and thus Uganda is left trying to pay back then actually being able to stimulate its economy at full potential.

Question 3

Explain how inflation affects the external debt of a country such as Uganda.

Inflation for any economy, increases the likelihood for interest rates to increase, as means to battle inflation. Now the problem is, the point for Uganda’s debt is because they want to stimulate growth and GDP, however because of Uganda’s interest rates increasing to decrease inflation, growth is not at maximum potential. Therefore, without stimulation of the economy, Uganda may not be able to attain the funds needed to repay the long term debts for the future.

Question 4

Evaluate the policies that a developing country, such as Zambia, can use to counter the effects of inflation. 

As seen in macroeconomics, there are two main policies to battle the three types of inflation. Firstly, the two types of inflation are: cost-push inflation which is a aggregate supply side shock, that decreases real GDP and increases prices, and demand-pull inflation, which is inflation caused by a shift in aggregate demand to the left causing an increase in real GDP but also a raise in prices. The two policies to fight them is carried by the central bank, perhaps of Zambia, and the government. The central banks has the ability to manipulate what is known as monetary policy, which is simply the rate of interest in a bank and the supply of money within the economy, something implicit of using interest rates. The pros of using monetary policy, the Zambian government can increase interest rates as means to lessen the supply of money within the economy, and as a result decrease inflation. It can also be used to maintain a satisfactory balance of payments. Another pro of using monetary policy is that it is a very quick acting. However the con is that monetary policy, as economists argue, can be seen as a chisel whereas fiscal policy is seen as a hammer. Fiscal policy is when the government manipulates expenditure and taxation as means to affect the demand side, which can be used to combat demand-pull inflation. The factors of aggregate demand are consumption, investments, government spending and the exports minus imports. Therefore if there is inflation caused by demand-pull, fiscal policy can decrease government spending to decrease GDP. The problem with this is that Zambia, as a lesser economically developed country, would not agree with a decrease in GDP, what could happen is that fiscal policy can increase the supply side to met the demand side inflation and thus reaching the long run aggregate supply. The con of using fiscal policy is that there is a major time lag, as it will take time to feel the effects of any imposition to effect the supply side.





#4 Triple A Data Response from section 4.6 (1)

20 02 2012

Asian countries fear drop in aid funding from Japan

India, Indonesia and the Philippines express concern over effects of Japanese disasters on aid from and trade with Tokyo

MDG Japan Earthquake and Tsunami : South Korean rescue team in Sendai

South Korean rescue workers collect the bodies of Japanese earthquake victims in Sendai. Asian countries now fear a cut in Japan’s overseas aid budget. Photograph: Yonhap/EPA

Asian countries that receive development assistance from Japan have expressed concern that aid budgets could be cut as the country recovers from last Friday’s earthquake and tsunami.

 

IndiaIndonesia and the Philippines have expressed fears that projects funded by Japan may be dropped or rescheduled.

The full economic impact of the disasters in Japan is yet to be seen, but fears are growing that the country might tip back into recession

Japan is not only a regional economic powerhouse and the world’s third-largest economy, it is also the fifth largest donor of development aid, after the US, France, Germany and the UK. According to data from the OECD, aid disbursements from Japan totalled $9.47bn in 2009, putting the country far ahead of Spain, the Netherlands, Sweden, Norway and Canada.

On Monday, the Japan International Co-operation Agency (Jica) said it was providing emergency shelter for civilians evacuating the area around the Fukushima nuclear reactor and was assisting the UN Disaster Assessment and Co-ordination take stock of the damage.

Officials from neighbouring Philippines have registered concerns about how the demands of Japan’s reconstruction might affect the Philippines’ economy. Japan is a major trade partner and one of the Philippines’ largest investors. It is also one the biggest donors of development aid to the Philippines. In 2010, over a third of the Manila’s $9.6bn aid package came from Tokyo.

The president of the Philippines’ senate, Juan Ponce Enrile, has warned that the country should expect a reduction in foreign assistance from Japan in the aftermath of the earthquake and tsumani. “Japan’s economy will weaken but not permanently,” he said. “The ODA [official development assistance] from Japan will be affected because they will be using their own money for reconstruction. Our development projects will also slow down and our export to Japan will also be affected.” 

In Cebu City – the country’s second largest city – concerns have centred around the development of a medical centre, which relies on funding from Jica. On Monday, the medical centre’s Dr Eduardo Sedoripa expressed fears that a $10m grant from the Japanese aid agency might be cancelled.

“I am worried, I mean, who wouldn’t be? It’s like having a diamond in your hand and suddenly losing it,” said Sedoripa.

The Philippine Daily Inquirer on Monday, said the disasters would bring a slowdown in industrial activity and a decline in demand in the service sector, along with decreases in job opportunities and an increase in layoffs.

Other concerns include the impact of the disasters on remittance flows from Filipino workers in Japan. The Philippines famously relies the export of migrant labour for its development, and workers’ remittances account for around 12% of the country’s GDP.

Meanwhile in Indonesia, the industry minister, MS Hidayat, said Japan might reschedule its new investments in infrastructure projects in the country. 

Franky Sibarani, of the Indonesian Chamber of Commerce and Industry,warned of the economic impacts, including a drop in demand for Indonesian goods such as processed food, footwear and textiles.

Similar concerns have been reported across a number of regions in India, where Japanese-funded development projects have been proposed or are under way. According to the OECD, India is the second largest recipient of Japanese aid, which reached $517bn in 2009.

A number of key infrastructure projects in New Delhi hang in the balance, as they depend largely on loans from the Japanese government. Of particular concern is an ambitious project to expand the capital’s metro system, which relies on funding from Jica. “It may be too early. But we do anticipate some reassessment of the loan amounts in the coming months,” said one local official. 

Similar fears have been expressed in Mumbai, where Jica is also poised to assist with the construction of a third line for the city’s metro system. “There is a possibility that Jica might squeeze a portion of its funds which it normally gives away to foreign countries for development,” says Rahul Asthana, commissioner of the Mumbai Metropolitan Region Development Authority.

Local energy, water, and sewage agencies in Andhra Pradesh have expressed similar fears, that development projects might be affected by the disasters in Japan. 

Other Indian projects dependent on Japanese funding include programmes to promote crop diversification in the northern state of Himachal Pradesh and biodiversity conservation in Tamil Nadu, in the south.

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Question 1

Distinguish between foreign aid and foreign direct investment

Foreign aid is seen as aid given by governmental assistance or by non-governmental organisations with goals to promote economic growth by providing aid to develop the welfare of a developing countries economy. In essence, this form of aid is meant to positively impact a developing nation.

Whereas, foreign direct investment is merely a measurement of the sum of capital inflow and outflow of an economy of a nation. Basically, it is the measure for the capital account, which is seen in the balance of payments. The areas it affects are the technology, trade-ventures, and management. Lastly, there are two types of FDI’s the inward foreign direct investments or the outward foreign direct investments, which are parallel to the idea of capital inflow and capital outflow.

Question 2

Explain why the earthquake and tsunami in Japan is likely to affect Japan’s capacity to donate foreign aid.

As a direct result of this form of natural disaster in the capital of Japan, funnels the aid given to other developing countries to the aid risen by the populace of the affected region. There was no need for Japan to focus on it’s own wellbeing hitherto the earthquake the demonstrated massive damages to the infrastructure, educational, GDP, the global fish exports, nuclear sustainable energy etc. Now that Japan faces it’s own problems in rebuilding, Japan’s capacity to donate to foreign aid would subsequently decrease.

Question 3

Explain how reductions in Japanese foreign aid might affect the economic development of the recipient nations.

Depending on the dependency the developing nations had to Japan’s aid, there would be a range of effects. For pros, since Philippines and other recipient countries gain less help from Japan’s foreign aid, they may run a deficit in domestic supplies as these countries may have lived off the support of Japanese funding. There may be less focus on developing nation’s infrastructure and the capacity to globalize. As a pro, however, these recipient nations may de facto increase private investments and reduce corruption, one of the largest problems within Philippines (speaking from personal knowledge) and many other recipient nations. These are all effects they may potentially occur due to the reduction of Japan’s capacity to donate to foreign aid.

Question 4

Evaluate the arguments for and against foreign aid.

The arguments for foreign aid basically entails the ability to increase the quality of life of developing nations in need of aid. The first and foremost is to increase domestic resources as nation may not be producing enough to sustain for it’s population. The next is that foreign aid given to developing nations would provide more focus on sectors that the developing nation cannot, for example, infrastructure, roads, and other expensive investments that a nation cannot focus on, usually these is seen as long-term projects that require a lot of time and money, but provide the greatest increase to overall GDP. Lastly, foreign aid provides a safe-ground for countries to “take-off” in developing, therefore enabling countries to pursuit developing.

The arguments for foreign aid surrounds the idea of “dependency.” Basically, if a country is to be given foreign aid, there may arise a reliance of constant funding from the developing nation of foreign aid. The preeminent issue being the culture of dependency, the whole purpose of foreign aid is to pull a developing nation “up to speed” with the rest of the developed nations, however, as they were first being pulled by hands, to use as a metaphorical analogy, the developing nation may actually holding on to developed nations, and without their support, the developing nations may actually not be able to sustain. The next main assertion to be made is that developing nations may instigate in corruption, as there is high incentive to take what is given and use for personal gains. An example of this is Philippines, as a Filipino, I know of corruption within the government, and I know the corruption erupts from external funding and internal taxation. Therefore, I know that corruption is a side effect of foreign aid. Another metaphorical analogy for this is that the developing nation is holding on to the hand of the developed nation, the developing nation being a hand of the government that then funnels down to the people who are at the end.

The use of foreign aid does substantially increase the ability for people to rise from poverty and the capacity to grow, however, due to my understanding of certain economies, Japan’s foreign aid is a bit too excessive, which causes the dependency issue as well as a corruption issue. Therefore, in terms of evaluation, I am for foreign aid because developing nations do need the funds to increase the certain aspects of their economy that they cannot afford to increase themselves, however I do believe there is a limit to how much foreign aid is helpful and how much foreign aid  becomes detrimental. Just like the J-Curve, too much foreign aid yields corruption and dependency, too little or none-at all yields low living standards, low GDP, and the inability to develop, therefore, as a developed nation sending foreign aid, they must look for the balance.





#3 Triple A Data Response from section 4.4 (2)

15 02 2012
India free trade agreement likely this year: SharmaSWITZERLAND: A broad-based trade and investment agreement between India and four-nation European Free Trade Association (EFTA), which includes Switzerland, is expected to conclude this year to facilitate closer economic cooperation.

Commerce and Industry Minister Anand Sharma said that seven round of negotiations have already been completed. EFTA states include Iceland, Liechtenstein and Norway, besides Switzerland. It is an inter-governmental organisation that promotes free trade and economic integration between the four nations.

“We are in the advance stage to conclude the free trade agreement. We are fast tracking the negotiations with EFTA… I hope that within a month’s time, both the sides will be in a position to make specific offers…,” Sharma said.

Sharma was here to inaugurate the Indian pavilion at the world’s most coveted watch and jewellery show ‘Basel World 2011’.

He said that India would embrace entire Europe through the comprehensive free trade agreement. India is also deeply engaged with the 27-nation European Union for a bilateral trade and investment agreement.

The minister said that the progress of India EFTA free trade pact would be figured during his bilateral meeting with Switzerland`s Economic Minister, Johann Schneider-Ammann in Bern today.

The EFTA members are not part of 27-nation European Union.

In the seventh round of talk, which was held last month in New Delhi, both the sides discussed about market access for industrial products, fish and agricultural goods, sanitary and phytosanitary measures, technical barriers to trade, customs procedures and trade facilitation, investment, intellectual property rights and dispute settlement.

India and EFTA had agreed to launch negotiations on the trade and investment agreement in January this year, following recommendations of a Joint EFTA-India Study Group set up in December 2006.

“When the FTA is concluded, we hope that there will be a significant rise in bilateral trade,” Sharma said.

The trade between Switzerland and India stood at $18 billion in 2010 up from $15 billion last year.

Swiss exports to India include machines, pharmaceutical and chemical products as well as precision instruments, while imports from India include textiles, agricultural products and components for the airline industry.

There are about 170 Swiss companies doing business in India.

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Question 1

Explain what is meant by a free trade area, such as EFTA?

A free trade area is known as an an agreement between nations where there is very little to no trade barriers. These trade barriers include protectionism, import taxation, tariffs, import subsidies and export promotion. With these barriers diminished, with all things left equal and remain the same (ceteris parabis), efficiency, productivity and overall trade is meant to increase.

Question 2

Analyse the benefits and costs of establishing a regional free trade area.

The benefit for free trade is that with free trade, there will be an increase of efficiency as markets compete against other international markets instead of local economies. Another benefit for free trade is that it frees up the market from potential increase in corruption as there are less subsidies to subsides the incentive for corruption. Another benefit for free trade is that free trade allows for increase in competition and efficiency within all nations in the trade agreement, this is because trade forces nations to increase productivity in order to survive in a thriving market.

The cost for free trade is that local producers may not have the ability to fund their production against firms elsewhere that contain some sort of comparative advantage or have the ability to produce with lower costs (as seen in figure A, where international supply may be able to sell products at cheaper products). As a result local producers get crowded out by external firms, and this is dangerous for nations that specialize in certain products. Thus as a result, there may be an imbalance of payments as there can be a current account deficit as an economy may import more than export causing currency appreciation, as a trickle down effect causes inflation within their own economy as products tend to become more expensive. This is problematic as locals may not experience the increase of real wages that consider inflation.

Question 3

Drawing upon real world examples, explain why bilateral trade agreements, such as that between EFTA and India, are becoming more popular.

Bilateral trade agreements is successful in the Caribbeans as they have established the CARICOM bilateral trade with the clump of nations within that region. These regions allow for the agreement of a single economy/single market, enabling free trade to occur in this region. More over, there are many more bilateral trade agreements that also exist such as NAFTA signed by America, Canada, and Mexico. This agreement allows for “open-doors” within the three individual economies, allowing access to trade in all three nations without any real borders or restrictions. Therefore, imports and exports in these three nations are traded at the slightest of ease, without tariffs, taxes or any form of trade prevention (except illegal substances). These two trade agreements demonstrate how bilateral trade agreements are becoming more popular in today’s growing global economy.





#2 Triple A Data Response For Question 1

9 02 2012

The World Bank as part of its work on benchmarking business regulations has developed a measure of the size of the informal economy. The methodology for estimating this indicator is based on the study by Schneider (2002). Using this data, Figure 1 graphs the size of the informal economy as a percentage of gross national income (GNI), which ranges from under 30 percent in South Africa, the continent’s largest economy, to almost 60 percent in Nigeria, Tanzania and Zimbabwe. The average in sub-Saharan Africa (SSA) is 42.3 percent.

Turning to the labour market, based on figures reported in ILO (2002a) the informal sector in SSA is estimated to represent around three-quarters of non-agricultural employment. According to ILO (2002c), the sector amounts to 72 percent of employment in sub-Saharan Africa, 78 percent if South Africa is excluded. Statistics reported in Chen (2001) suggest that 93 percent of new jobs created in Africa during the 1990s were in the informal sector, reflecting the impact of globalization, economic reforms and competitive pressures on the labour market in recent years.

ILO (2002b) reports on the share of employment in the informal sector for a number of African countries based on the harmonised and national definitions.1 Figure 2 presents the share of total employment in the informal sector using the national definition for a number of African countries. Though the figures are for different years, it is clear that the share of informal employment varies considerably within Africa, ranging from 8.8 percent in Zimbabwe to 94.1 percent in Mali.

Question 1

Define the term ‘informal sector’.

Informal sector refers to the market within the economy where trade is not taxed nor is accounted for in the government.  The informal economy can be thought of as a process of trade in which the government has no notice of at all; for example, black market trading or street vendors, they are parts of an informal sector because the government does not take into account the trade that goes on a market that is discreet, and thus does not tax these sectors.  Therefore, it is a private trade amongst other private traders, the goods traded are goods sold in the formal economy, as these private traders act as distributors in local areas.

Question 2

Identify the type of activities provided by the informal sector?

As outline in the explanation in question 1, the type of activities found in the informal trade is discreet trading. The discreet trading originates from the formal sector and is distributed into the black market where there is an unseen trade that occurs. The trades that are seen within the article suggest that there is a increase in jobs, a 93% increase to be exact. These jobs include non-agricultural employment, and was demonstrated when there were economic reforms due to globalization and the increase of competition of foreign firms.

Question 3

Examine the impact of a strong informal sector impact on the reliability of GDP figures as an indicator of economic development.

GDP or the gross domestic product takes into account of all the formal sectors aggregate spending, the informal sectors spending however is not take into account of. In which case, using GDP to measure economic development within an economy with a large informal sector would prove useless or less useful in measuring economic development as the “behind-the-scenes” shopping that goes on still exists in parallel to the big businesses. Therefore, GDP would be a poor measure of economic development.

Question 4

Analyse the benefits and the costs of African governments encouraging the growth of the informal sector.

 

Depending on the economic status of Africa, informal sectors provide sustainability to the populace of the lower class. The costs is that there may not be taxation that allows governments to increase GDP by government expenditure, however, this may not be a big issue, because as mentioned in a class discussion, if the government doesn’t give back or provide any social incentive to produce for the formal market, informal markets will arise. This is also because as governments gain governmental taxation revenue, like China spending immense amounts in creating “ghost villages”, they may be focusing on increase GDP and not honoring the social contract between the population and the government. The laymen phrase being “If they don’t give back to us, why should we give to them” making reference to the people and there reasoning to not get taxed.  Therefore there is a larger incentive to trade being the governments back, and this isn’t a problem at all either, as the discreet trading usually originates from the formal sector as a trickle-down effect from distributor to distributor. In this way, the informal sector allows for the survival of it’s people, the stimulation of the economy behind the back of the government, as well as sustainability which is one of of the primary economic development goals, the means to maintain economic growth.





#1 Triple A Data Response For Question 2

6 02 2012

The Secrets of Cuban Medicine

Cuban Political Cartoon

Aleksei Aleksandrov, Argumenty i Fakty (mass-circulation weekly), Moscow, Russia, Sept. 17, 2003

In the Havana airport, pale people in wheelchairs and groups of children with a feverish glint in their eyes are barely noticeable among noisy crowds of tourists. There are not too many of them, but there are some on almost every foreign plane landing at the airport of the Cuban capital. These are the people who have come to Cuba seeking medical treatment. It is hard to believe, but even now, as Cubans-living in poverty and cursing the delights of the socialist economy-stand jammed in lines at stores to exchange food stamps for groceries, numerous Cuban clinics and sanitariums are successfully treating thousands of cancer patients every year. In a period of 10 years, 18,000 modest citizens of Russia and Ukraine have undergone treatment in Cuba without having to pay a single kopeck. How did a small tropical republic manage to create the best health-care system in Latin America?

“You are asking where the billions of dollars we receive from foreign tourists go? You think the money is spent on new uniforms and false beards for Fidel?” laughs a government official in Havana. “Take a tour of our hospitals, clinics, and rehabilitation facilities-you will find the answer to your question there. Exactly half of all the currency earned in our country goes toward the health-care system, and it is our policy to spare no expense for that purpose. Maybe there is no gasoline in Cuba to fill the car up before heading off to work in the morning, and they don’t have meat for lunch everywhere, but at least the people are healthy.”

The successes of Cuba in the area of health care are, in fact, amazing, especially if you take into account that the country was on the verge of economic collapse after the Soviet Union ended its generous financial aid program. Physicians from leading clinics in the United States come here in secret (officially it is forbidden for U.S. citizens to visit Cuba) to acquaint themselves with Cuban experience and practices, say officials at the Russian Embassy in Havana. They illegally buy medications, such as the famous Cuban vaccine for meningitis, which is produced nowhere else in the world. Then there are the Cuban physicians who have developed a drug to treat hepatitis B. Regarding treatment for cancerous tumors, the Cubans are well ahead of many of the world’s developed countries.

Question 1

Identify the indicators of development the article identifies as priorities for the Cuban government.

According to the article, Cuba has the best “the best health-care system in Latin America” indicating that the government of Cuba prioritizes the health-care system rather than other important sectors of the economy. Moreover, in the article it states that “Exactly half of all the currency earned in our country goes toward the health-care system” which further indicates that the Cuban government disregards it’s populace and focuses on the health care system. Therefore, this indicates that there is an imbalance between the health care sector and all the other sectors within Cuba as the Cuban government increases GDP for developing the health care system, but doesn’t focus on it’s own population. Instead the Cuban government is promoting tourism by creating quality health care at the expense of the quality of Cuban citizens.

Question 2

Examine the evidence in the article that suggests the inhabitants of Cuba experience low livings standards.

The article makes many references to the living standards of Cuba, indicating poverty, low quality of infrastructure and low attention to the rising mal nutrition and low quality of local health. Addressing poverty, the article states that among the tourists within the airport lies “pale people in wheelchairs and groups of children with a feverish glint(s)” the demonstrate that there are “Cubans-living in poverty and cursing the delights of the socialist economy” moreover, restating that the Cuban government spends half of its own currency in improving the health care simply suggest an imbalance. Addressing infrastructure, the article states that Cubans experience “no gasoline to fill the car up before heading off to work in the morning” as a metaphor to suggest that gasoline and transportation of Cuban citizens is less important than the health-care system. Lastly, addressing the mal nutrition and low quality of local health, the article uses another metaphor of no food to demonstrate how Cubans focus on health-care rather than the agricultural sector of the economy.

Question 3

Analyse the advantages and disadvantages to the Cuban economy as a result of allocating resources to the health sector.

The advantage of the Cuban economy focusing on the health-care sector attracts tourists. By doing so, increases GDP from investments pouring into the Cuban economy as there is a direct inflow of investments from the increase of foreign capital, and as a result the Cuban government sustains formal development as there is a demand for treatment overviewed by the government.

However, there are substantial disadvantages that affect the local populace of Cuba, such of which is sometimes considered more important, as the measurement of GDP of Cuba does not reflect the welfare of its people. For example, the article had taken notice of the Cuban government allocating its currency and focusing it towards health-care, as a direct result, the government disregards the other important sectors that pertain and affect the people. As a result, the economy is improving but the living social standards are left low.





DEVELOPMENTAL ECONOMICS QUESTION RESPONSES

6 02 2012

BY
TYLER FUKAE, WILL CONGLETON, PAOLO CASTRO, PAUL RYU, AND SONNY BAUTISTA.

Question 1 Explain the importance of human capital in contributing to economic development.

Human capital is the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value.
Human capital is vitally important for an organization’s success (Crook et al., 2011); human capital increases through education and experience

Statistical indicator used for human capital = HDI (Human Development Index)
● Combination of Life Expectancy Index, Education Index, Income Index

Life expectancy reveals health of the population of the country… obviously
Education reveals education standards as well as literacy of the country.

Human Capital = developed through standard of living, health, and education.
HDI is indicator of positive correlation between human capital formation and economic development. If HDI increases, there is higher rate of human capital formation in response to higher standard of education and health. Similarly, if HDI increases, per capita income of the nation also increases.
● Implicitly, HDI reveals that higher the human capital formation due to good standard of health and education, higher is the per capita income of the nation

Question 2 Explain the difference between economic growth and economic development.

Economic growth occurs when there is an increase in production potential. It is best measured by a country’s real level of output over time; in other words, an increase in real gross domestic product (real GDP) [real GDP is….GDP adjusted for inflation]
WHERE AS….
Economic development occurs when there is improvement in the lives of all people in a country. Improvement of the following:
1. living standards
a. greater availability of goods and services
b. greater ability to purchase goods and services
2. promotion of —
a. self-esteem
b. respect
c. dignity
d. freedom of choice and thought

ECONOMIC GROWTH MAY OCCUR IN TERMS OF AN INCREASE IN REAL OUTPUT OR REAL GDP, BUT IT DOES NOT INDICATE AN IMPROVEMENT IN THE LIVES OF ALL PEOPLE IN A COUNTRY. (THIS MEANS ITS ANGRY)

Question 3 Discuss the view that the achievement of higher economic growth rates should be the priority of developing economies.

Biggest problems that all developing economies have
● Poor level of education & health care
● Poor politics & corruption → Investors feel insecure to invest
● Income inequality
● Unemployment → social problems
Pros of higher economic growth
● Decrease in level of unemployment
● Better standard of living for majority
Cons of higher economic growth
● High inflation → High interest rate → Less productivity → Balance of payment deficit
● Inequality of wealth and income distribution

Question 4 Explain what is meant by sustainable development.

In terms of sustainability, it refers to the ability for the environment to survive without changing resources. Therefore, any resources used must be able to be reused and must not have any detrimental effects on to the environment.

Aim:
● improve recycling
● alternative power
● maintaining biodiversity
● admitting to being wrong, if wrong, and accepting any repercussions that entail any act against the environment.

Methods:
1. extending property rights: giving the society the ability to protect the environment
2. pollution tax: taxing those who pollute that cause detrimental problems to the environment
3. polluting permits: allowing for rations and the ability to pollute a certain amount. Also a limit to how much one can pollute.
4. traffic control: imposing plans to eradicate the pollution of cars

Therefore sustainable development is the ability to sustain development and also protecting the environment at the same time.

Question 5 Explain how extending property rights and land ownership can help bring about more sustainable development.

Extending property rights / land ownership: Allowing people to own, and therefore be responsible, for the land on which they live or operate a business.

By allowing people to be in control of their own land without support from the governing body, producers must be able to supply their products in a way that ensures the continuity of their property. Property in this sense is commonly thought of as the land the producer operates on, but can also include the local body of water, air, flora and fauna and natural resources, as well. In this sense sustainability can be observed by housing development, agriculture, resource mining and goods production. By allowing people to be in control of the way they produce they are forced to practice sustainable, or else be ousted from the competitive market.

Possible alternatives: Governments can also look to subsidize producers who excel in sustainable practice in order to encourage the longevity of sustainable development. Additionally governments can provide capital for those working towards becoming sustainable in order to facilitate a quicker transition.

Question 6 Discuss the view that economic growth will inevitably conflict with sustainable development.

Well obviously if you grow to much, your gonna end up falling over. TRUE STORY (wait, im actually working on it) ❤

Pros and Cons (Question 3)
ALSO
● Inequality of income – growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. In developing economies, income distribution is frequently unequal and many of the benefits of growth may go to the better-off in society and flow overseas in the form of increased profit for multinational corporations.
● Pollution (and other negative externalities) – the drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution and resource degradation. This may be water or air pollution, but growth also creates significantly increased noise pollution. Deforestation and environmental degradation are likely to result from growth. This is particularly true in developing countries as they tend to have little legal protection of the environment.
● Loss of non-renewable resources – the more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last.
● Loss of land – increased output puts further pressure on the available land. This may gradually erode the available countryside. In many developing economies there will also be additional problems resulting from the movement of people from country to urban areas.
● Lifestyle changes – the push for growth has in many areas put a great deal of pressure on individuals. This may have costs in terms of family and community life in many economies.